1. One of the major revenue-producing items manufactured by Ajou Corporation is a smartphone. Ajou Corporation currently...

1. One of the major revenue-producing items manufactured by Ajou Corporation is a smartphone. Ajou Corporation currently has one smartphone model on the market, and sales have been excellent. However, as with any electronic item, technology changes rapidly, and the current smartphone has limited features in comparison with new models. Ajou Corporation spent $750,000 to develop a prototype for a new smartphone that has all the features of the existing smartphone but adds new features such as WiFi tethering. The company has spent a further $200,000 for a marketing study to determine the expected sales figures for the new smartphone.The new smartphone project has a five-year life. Ajou Corporation can manufacture the new smartphones for $220 each in variable costs. Fixed costs for the operation are estimated to run $6.4 million per year. The estimated sales volume is 155,000, 165,000, 125,000, 95,000, and 75,000 per year for the next five years, respectively. The unit price of the new smartphone will be $535. The necessary equipment can be purchased for $45 million. The equipment has a five-year life and will be depreciated to zero on a straight-line basis over that period. It is believed the market value of the equipment in five years will be $6.5 million. As previously stated, Ajou Corporation currently manufactures a smartphone. Production of the existing model is expected to be terminated in two years. If Ajou Corporation does not introduce the new smartphone, sales will be 95,000 units and 65,000 units for the next two years, respectively. The price of the existing smartphone is $385 per unit, with variable costs of $145 each and fixed costs of $4.3 million per year. If Ajou Corporation does introduce the new smartphone, sales of the existing smartphone will fall by $30,000 units per year, and the price of the existing units will have to be lowered to $215 each. Net working capital for the smartphones will be 20 percent of sales and will occur with the timing of the cash flows for the year; for example, there is no initial outlay for NWC, but changes in NWC will first occur in Year 1 with the first year’s sales. Ajou Corporation has a 21% corporate tax rate and the required rate of return is 12%. Determine whether the corporation should accept or reject the new smartphone project, based on the NPV rule.

Expert Solution

Research and development and market study are sunk cost and are not included in calculation.

as NPV is positive. it is recommended to invest in the new Smartphone.

jeff jeffy answered 3 months ago

A monopolistic firm is currently producing 3,500 units of output; price is $100, marginal revenue is...

A monopolistic firm is currently producing 3,500 units of output; price is $100, marginal revenue is $7, average total cost is $5.50, marginal cost is $4.50, and average variable cost is $3.75. The firm should a. raise price because the firm is losing money. b. keep the price the same because the firm is producing at minimum average variable cost. c. raise price because the last unit of output decreased profit by $5.50. d. lower price because the next unit...

Select at least 4 or 5 of the highest revenue-producing products your firm currently offers to...

Select at least 4 or 5 of the highest revenue-producing products your firm currently offers to the marketplace or 4 or 5 of the highest revenue-producing companies that it currently operates, and then construct a BCG Matrix using relative market share and market growth rate as your two variables of interest. Identify each of the products (or companies) in your matrix as either a star, question mark (problem child), cash cow, or dog. Finally, for each product (or company) in...

In Enron's bankruptcy, "Revenue Recognition" was one of the major issues. First, summarize the revenue recognition...

In Enron's bankruptcy, "Revenue Recognition" was one of the major issues. First, summarize the revenue recognition issue in Enron Bankruptcy. Second, as an auditor, what type of evidence would you want to examine to determine whether Enron was inappropriately recording revenue from the Sithe Energies contract?

One of the major sources of revenue for the government is Tax. The government spends the...

One of the major sources of revenue for the government is Tax. The government spends the tax that it collected on various activities which include nation building and social welfare of citizens and residents. The government charges tax to individuals and corporates as per the tax provision in the country, but there have been many incidences where the payers have not paid taxes to the government. The country’s tax authority is empowered to implement the tax laws and also penalise...

What is the net income of the corporation? Income Statement Items ($) Revenues Sales Revenue 500,000...

What is the net income of the corporation? Income Statement Items ($) Revenues Sales Revenue 500,000 Cost of Goods Sold 20,000 Administration Expenses 20,000 Selling expenses 30,000 Depreciation 15,000 Taxes 15,000 A. $400,000 B. $100,000 C. $450,000 D. $300,000 E. $150,000

company is producing 2 items A and B joint]y in fixed proportions of 1 :1 ....

company is producing 2 items A and B joint]y in fixed proportions of 1 :1 . The following indicate their market demand functions: QA : 700 - 1 00 PA and QB : 500 - 200 P B. The MC of the joint operations is constant at Rs- 2 per unit What quantities of A and B will company produce for optimum profits? (b) Will the company need to store in inventory at least one of the items or both...

Map071 Shop specializes in producing and selling pouch bags. Currently, there is only one type of...

Map071 Shop specializes in producing and selling pouch bags. Currently, there is only one type of pouch bag being produced and sold by the shop, namely Baby On. The newly designed pouch bag is carefully produced by the business owner, Ms. Meisa. The materials are specially purchased from the best supplier in town and the processes are followed under strict quality control. The selling price for Baby On is RM42 per unit. The following information is gathered for the purpose...

General Monsters Corporation has two plants for producing juggernauts, one in Flint and one in Inkster....

General Monsters Corporation has two plants for producing juggernauts, one in Flint and one in Inkster. The Flint plant produces according to fF (x1, x2) = min{x1, 2x2} and the Inkster plant produces according to fI (x1, x2) = min{2x1, x2}, where x1 and x2 are the inputs. 1. On a graph, use blue ink to draw the isoquant for 40 juggernauts at the Flint plant. Use red ink to draw the isoquant for producing 40 juggernauts at the Inkster...

Question 1 (25 marks) For smartphone, the battery performance is one of the important technical specifications....

Question 1 For smartphone, the battery performance is one of the important technical specifications. A company has designed a version of smartphone and has done some tests on the battery life. Let X denotes the amount of time that the fully charged battery can last for Internet surfing. The unit of X is hour and it is omitted in the following discussion. (a) Suppose we know that X is normally distributed with mean μ=10 and standard deviation σ=1.2, i.e., X~N(10,〖1.2〗^2)....

1. Manufacturing Income Statement, Statement of Cost of Goods Manufactured Several items are omitted from the...

1. Manufacturing Income Statement, Statement of Cost of Goods Manufactured Several items are omitted from the income statement and cost of goods manufactured statement data for two different companies for the month of December. On Company Off Company Materials inventory, December 1 $61,580 $80,670 Materials inventory, December 31 (a) 91,160 Materials purchased 156,410 (a) Cost of direct materials used in production 165,030 (b) Direct labor 232,160 181,510 Factory overhead 72,050 90,350 Total manufacturing costs incurred in December (b) 521,930 Total...

Question